How Does Snapchat Make Money? Snapchat Business Model
From Snapchat to Snap Inc., the journey of three Harvard students has taken the world by surprise. It showed what a disruptive idea can do.
When every platform was trying to save and organise memories, Snapchat found a way to delete them instantly. While every social platform allowed users to send messages, images, audios, and videos, Snapchat focused solely on visual memory. Five years after its launch, it officially rebranded itself as a camera company.
Its unique analytics and efficient business model made this possible. But what is Snapchat business model? How does it operate and make money?
Let’s find out.
What Is Snapchat?
Snapchat is a privacy-focused social media application that allows one to share memories in visual form. Here, users communicate with their friends and other people by sending and receiving pictures, videos, and texts that disappear once seen.
The startup was launched in 2011 by Evan Spiegel, Reggie Brown, and Bobby Murphy under the name of ‘Picaboo’. However, a few months after the launch, the founders received a cease-and-desist from a photobook company which had trademarked the name. Meanwhile, there was a fallout among the founders, which led to the ousting of Reggie Brown. After this, the two co-founders rebranded Picaboo as Snapchat. The images and videos sent through this platform are called snaps; thus, the name.
Who Are Snapchat’s Customers?
Snapchat’s target demographic is the Generation Z. Because the application addresses this generation’s needs for privacy. Most of its instant messaging (IM) users fall between 13 to 34 years.
A lesser-known fact is that Snapchat is useful for businesses and content creators as well. Since it offers customised advertisements that blend in with users’ experience (instead of intruding on them like Facebook and Google ads), Snapchat is a great marketing platform for local as well as international brands. Meanwhile, the company pays content creators for their skills through Spotlight, which boosts its popularity.
What Value Does Snapchat Provide?
Snapchat is the platform that caters to the needs of IM users, businesses and content creators alike. Unique in its outlook, Snapchat creates a self-sustaining framework where it is a win-win situation for all.
What Value Does Snapchat Provide to IM Users?
Snapchat is the first platform that catered to the youngster’s need for privacy. Images, videos, and texts shared over Snapchat disappear automatically unless saved. Also, it notifies the user if the other party takes a screenshot of their snaps, stories, or conversations.
When social applications like Whatsapp and Instagram focused on saving memories, Snapchat came up with the disruptive idea to build a platform where shared content automatically gets deleted after some time. This addressed the new generation’s repressed demand for privacy.
Moreover, Snapchat is fun and convenient for a generation that wants everything to be instant. While Facebook and Instagram require users to post perfect pictures with eloquent captions, Snapchat allows them to share their day’s happenings and memories with their contacts instantly. Its augmented reality lenses and filters add humor and beautiful effects to the pictures, thus increasing the platform’s appeal.
In the words of CEO Evan Spiegel:
Snapchat isn’t about capturing the traditional Kodak moment. It’s about communicating with the full range of human emotion – not just what appears to be pretty or perfect.
What Value Does Snapchat Provide to Content Creators?
Since Snapchat users open the app around 20 times a day, the company has started providing entertaining content to boost their engagement. Spotlight was launched in November 2020 with this purpose in mind.
It is a Tik-Tok like feature that allows people to create and post short video content for public consumption. The top creators are paid each day from a $1 million dollar pool.
What Value Does Snapchat Provide to Businesses?
Snapchat, as an actively growing community of young internet users, is a good place for brands to market themselves.
Internet users often get repulsed by the traditional ads featured on Google, Facebook, and Instagram. Snapchat leverages this to its advantage by offering customised lenses and Geofilters to its advertisers so that their ads feel non-intrusive and organic.
How Does Snapchat Operate?
Anyone over the age of 13 can create a Snapchat account by filling in their name, phone number, and other relevant details. One must remember that they cannot change their Snapchat username, once signed up.
Users are attracted to the app by its ‘self-destructive’ instant messaging feature that offers them safe and private encounters. Snapchat also allows them to click and share snaps instantly and maintain Streaks with their friends.
The company has lately been launching new services to boost user engagement. Discover and Spotlight features are emerging as interesting pastimes.
Spotlight also allows its users to create content and get paid for it; thus, boosting Snapchat’s appeal among young content creators.
Besides IM users and content creators, Snapchat is also turning out to be a playground for brands with its non-intrusive and engaging ads. Since youngsters spend a huge chunk of their time on Snapchat, local and international businesses, especially the ones who are targeting the Millennials and Generation Z can leverage this to their advantage.
They can launch sponsored ads after creating a business IDs or opt for customised Lenses and Geofilters. Snapchat also provides them with certified courses on Snapchat Marketing through its Snap Focus initiative.
Snapchat’s unique analytics and distinctive features help it attract, acquire and retain customers.
Lenses
Source:
Snapchat uses augmented reality to create fun and inviting lenses that add humor and beautiful effects to their pictures, videos and Spotlight snaps. Businesses may partner with the company to design customised lenses.
This technology is relatively new and Snapchat has been the first to use it on a social application.
Filters
Filters are the fascinating frames used in photos and videos. Snapchat’s location and occasion-based creative filters attract its IM users and content creators who love experimenting with visuals. Brands can get custom-made Geofilters or Moment Filters for themselves. Users interact with these filters and boost the popularity of the brands.
Stories
One of the most attractive features of Snapchat, Stories allow users to tell their day’s story to the world instantly by capturing and uploading images and videos. One can use lenses and Geofilters over their Stories or add texts to improve their relevance.
Our story
Our stories are the collection of snaps contributed by different people around the Snapchat community. They allow Snapchatters who are at the same location or event to capture it through different perspectives, like a single-story, written by many.
Discover
Snapchat partners with publishers and content creators who want to provide their content over the app. Publishers like Buzzfeed, MTV, National Geographic, etc. provide news and feed in the form of stories that are replaced with new content every 24 hours whereas brands like ESPN, Food Network, Comedy Central, etc. offer diverse content.
Snapchat tracks user preferences and shows them content they are interested in.
Spotlight
Spotlight is the Tik-Tok-like feature of Snapchat that allows users to share their entertaining snaps and short videos with people they may or may not be friends with. The viewers can access them on or off the app and engage with them by liking, sharing, and saving.
Snapchat pays the most viewed snaps daily; thus, making Spotlight a lucrative platform for content creators.
Snap Originals
Originals bring Snapchat users hyper condensed original shows from a few of the world’s leading storytellers. Specifically designed for this platform, Originals challenge content creators to shoot 5-minute long episodes in a vertical framework. (grabbing mind within 3 second)
Snap Map
Powered by Mapbox, Snap Map allows users to share their snaps and stories with the world and view those of others. Here, stories are created around specific locations and occasions. Snapchat users can also see the locations of their friends on Snap Map.
Another benefit of Snapmap is that it allows users to locate and interact with local businesses and restaurants. Various brands and aggregators partner with Snapchat so that users can read their reviews, place orders, and book tables.
Scan
Snapchat’s scan feature helps its users scan an item and get details about it. This feature is the result of Snapchat’s partnership with other companies.
Amazon Camera Search: Snapchat’s partnership with Amazon Camera Search helps users scan a product and look for it in the Scanner: This partnership helps users identify the breed of the scanned dog(s). Photomath: Photomath provides users with solutions to math antSnap: This partnership allows Snapchat users to scan and identify various plants and One of the most lucrative partnerships, it identifies and provides information to the song currently playing around a Snapchat Snapchat’s partnership with Vivino lets users get information about wine This partnership lets users scan a food product’s barcode for its nutritional value.
How Does Snapchat Make Money?
With an active user base of over 238 million, Snap Inc. hit a $100 billion market value in 2021. It also showed a raised net worth of $5 billion.
Since its inception in 2011, the company has been growing fast so much so that, as of 2020, 48% of 15-25 year-olds in the United States use it regularly. Its user-friendly business strategies and a potent revenue model is the reason why it gives a tough competition to giants like Facebook.
How Does Snapchat Earn?
Paid advertisements form a bulk of Snapchat’s revenue. As of the year 2020, 99% of Snapchat’s revenue comes from sponsored ads and the rest 1% from Snap Spectacles and other sources.
The teams which design its consumer products run advertising initiatives too therefore these ads are camouflaged in the form of user-friendly updates. Generation Z and Millennials engage with them even without realising that they are actually ads.
The augmented reality-generated Snapchat lenses appeal to the youngsters as they are humorous, joyful, and fun to use. Snapchat updates its lenses every week and brands pay to have a lens tailored to their needs. In the past, companies like Gatorade, Taco Bell, etc. have opted for Snapchat marketing through sponsored lenses only to see a tremendous surge in their user engagement.
Companies partner with Snapchat to create customised Geofilters and moment filters which people attending a particular event at a particular place can use. For instance, Disney California Adventure Park designed its own Geofilter.
Snapchat also provides On-demand Geofilters to the companies which they can use to promote their brands among the youngsters.
Snapchat smartly places brand advertisements in the stories section so that users engage with them while going through their friends’ stories.
Discover is another revenue-generation source for Snapchat. Publishers who have partnered with the company to get their content featured on Discover, do pay a lot of money.
The publishers are typically required to pay a minimum sum over a specific period. Snapchat also splits revenue with them if they show any sponsored content or advertisement.
Partnerships
Partnering with Snapchat benefits them so much that brands are ready to pay huge sums for it. Integrations like that with Shazam have been one of Snapchat’s most successful ones.
Snap Store
Snapchat launched the Snap Store to sell its exclusive merchandises like Bitmoji clothes, Snap streak hats, Winkface sweatshirts, dog lens tee, etc. Here, the company capitalises on the scarcity principle.
The Snap store is available on the discover tab and the items disappear after a while.
Snap Kit
Snap Kit is a feature of Snap Inc. to assist Snapchat users in consolidating their businesses. It provides them with a few of Snapchat’s best features to grow and build their brands.
Spectacle
Spectacles are augmented reality smart glasses manufactured by Snap Inc. They have built-in cameras that allow users to capture photos and videos of what they are looking at. Also, they are synced with smartphones so that the users can directly upload snaps to their accounts.
How Does it Spend?
Research and Development: Snapchat’s parent company, Snap Inc., is a camera company that believes in reinventing the camera and revolutionizing the way people click photos to facilitate better and more effective communication. So, it incurs cost mainly on research and development. In 2019, Snapchat spent $884 million on R&D. Cost of Revenue: Cost of revenue is the total cost incurred by a company directly on producing, marketing, and distributing its products. In this category, Snapchat spends mainly on infrastructure and marketing. Snapchat incurred $489 million cost of revenue in the first two quarters of 2020 light: Snapchat launched Spotlight in November 2020 and announced that it would pay the creators of the most viewed videos each day from a $1 million pool. The payout is determined after comparing the number of views of a video with that of other viewed content.
Snapchat is still not a profitable venture. It has enjoyed its periods of profit but mostly incurs losses. In the fiscal year 2020, it reported a net loss of $994. 8 million on a $2. 5 billion revenue.
However, Snapchat has immense potential to grow. It broadly caters to users’ needs. Live stories, location-based Geofilters, and other creative features distinguish it from its competitors. No wonder, Facebook and Google offered $3 billion and $4 billion, respectively for its acquisition. However, CEO, Evan Spiegel rejected the proposals and continues on building Snapchat business model till date.
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A finance enthusiast, literature beau and lifelong learner. Working her way up the success ladder and her personal philosophy textbook, Kavvya believes that a good conversation is worth more than a good book. When not working, she can be found reading, writing and engaging in long walks.
How Does Snapchat Make Money? – FourWeekMBA
Snapchat business model is based on advertising revenues. Even though the company got listed, it didn’t manage yet to turn a profit as of June 2018.
Snapchat monetization strategy
Snapchat monetizes primarily through advertising. The advertising products include:
Snap Ads
and Sponsored Creative Tools (Sponsored Lenses and Sponsored Geofilters)
In the year ended December 31, 2017, Snapchat recorded revenues of $824. 9 million compared to $404. 5 million for the year ended December 31, 2016, a 104% year-over-year increase.
Revenues are classified in two ways:
Advertising gets sold directly to advertisers, referred to as Snap-sold revenue
Certain partners that provide content on Snapchat, or content partners, also sell directly to advertisers, referred to as partner-sold revenue
For the year ended December 31, 2017, and 2016, approximately 94% and 91% of advertising revenues were Snap-sold, respectively, and about 6% and 9% was partner-sold, respectively.
Snap Ads, whether Snap-sold or partner-sold, may be subject to revenue sharing arrangements between Snapchat and the content partner.
What metrics does Snapchat use to assess its success?
Snapchat measures the progress of its advertising business using two key metrics
ARPU (average revenue per user) because it helps Snapchat understand the rate at which it is monetizing the daily user base. Snapchat defines ARPU as quarterly revenue divided by the average Daily Active Users. Average revenue per user, or ARPU, was $1. 53 in the fourth quarter of 2017, compared to $1. 05 in the fourth quarter of 2016, an increase of 46% year-over-year.
Snapchat defines a Daily Active User as a registered Snapchat user who opens the Snapchat application at least once during a defined 24-hour period. DAU or Daily Active Users, or DAUs, were 187 million in the fourth quarter of 2017, compared to 158 million in the fourth quarter of 2016, an increase of 28. 8 million or 18% year-over-year.
Snapchat key financial metrics
Revenue was $824. 9 million, an increase of 104% year-over-year.
Total costs and expenses were $4. 3 billion, an increase of 84% year-over-year, excluding stock-based compensation expense and related payroll tax expense.
Loss from operations was $3. 5 billion.
Net loss was $3. 4 billion with diluted loss per share of $(2. 95).
Adjusted EBITDA was $(720. 1) million.
Cash used in operations was $734. 7 million, and Free Cash Flow was $(819. 2) million.
Capital expenditures were $84. 5 million.
Cash, cash equivalents, and marketable securities were $2. 0 billion as of December 31, 2017.
Research and development expenses for the year ended December 31, 2017, increased $1. 4 billion compared to the same period in 2016. The increase was due to a $1. 1 billion increase in stock-based compensation expense primarily due to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for Snapchat IPO in March 2017.
Read Snapchat business model and its startup story.
Read How Does WhatsApp Make Money? WhatsApp Business Model In A Nutshell
References
Snapchat 10K annual report 2017
Snapchat 10Q for 2018
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How Does SnapChat Make Money? – WHSR – Web Hosting …
At first look, the idea of messages that self-destruct after a specific period sounds ’s exactly what Evan Spiegel’s classmates thought when he pitched the idea behind SnapChat in forward to 2017 – Snap (Snap Inc. ), the parent company of Snapchat, priced its initial public offering at $17 a share on March 1st, 2017 and the company is scheduled to begin trading on the New York Stock Exchange on March 2nd, 2017. This will give Snap a market value of nearly $24 billion, making it the largest U. S. tech IPO since begs for our next question … which is the main subject of our article… How does SnapChat make money? Quick answers –Snap AdsGeofiltersSponsored Lens FiltersDiscoverSports PartnershipsBefore we dive in, we need to first understand…What is SnapChat Really? To understand the success of SnapChat, you must first know what the app does and how it can exchange “snaps” or messages that may contain text, videos, and photos. Private messages are automatically deleted once they are opened. A public post, on the other hand, has a 24-hour expiration you think those limitations are ridiculous, you should know that videos can only be up to ten seconds in length. In other words, SnapChat is either a poorly-designed messaging app or something else entirely. But with 150 million daily active users and an estimated valuation of $18 billion, it’s clear that this social media craze is anything but poorly-designed. Expiration Dates – SnapChat’s Selling PointThe brilliance behind SnapChat boils down to a simple philosophy – some things are more valuable with a time limit. Giving expiration dates to social content increases the engagement factor. This is mainly because users who can catch snaps while they’re available to gain the sense of exclusivity. For example, stories that cover major sporting events attain high engagement because sports fans love that “in-the-moment” feel. For a PR boost, companies also feature stories that take their audience behind the scenes. Some appropriate settings include the launch of a new office, a company outing, or a charity course, SnapChat comes bundled with other exciting features as well. Apart from the ability to send snaps, users can also publish stories, which are curated snaps that are visible to make snaps more interesting, SnapChat also offer lenses that apply humorous overlays – from frowning faces to the infamous dog face filter. These filters sometimes require actions from the user to trigger animations such as raising an eyebrow and sticking their tongue out. Overall, lenses give users an outlet for creativity and self-expression, which is something that everyone can, it turns out that SnapChat’s self-destructing messages are great for absolute privacy and security. In some ways, sending snaps is way better than using encrypted messaging apps if you’re concerned about privacy. Once a snap reaches its time limit, there’s no way for any unauthorized party to recover its all these reasons, SnapChat proves to be a very effective content distribution channel for brands who wish to establish a presence in social media. It’s time for the million dollar question…So how Does SnapChat Make Money? Just like other social media platforms like Twitter, Facebook, and Instagram, SnapChat is profiting off of advertisements. But thanks to its unique features, the company is making a killing. 1- Snap AdsSnap Ads are the bread and butter of SnapChat advertising. They work by showing 10-second, full-screen video ads that are always relevant to other snaps. These ads are also interactive. When presented, users have the option to swipe up to access more content – be it a longer video, blog post, or app improve conversions, the company launched SnapChat Partners with firms such as 4C, SocialCode, TubeMogul, and Adaptly. Data suggests that SnapChat’s ad revenue will hit nearly $1 billion next year. According to eMarketer, one of the reasons behind this explosive growth is the app’s immense popularity – particularly among millennials and members of the Generation eMarketerDespite SnapChat’s moves to increase ad revenue, there’s one line they wouldn’t cross – ruining the privacy of their users. That’s why the company ensures that businesses can’t advertise to their users’ private from Snap Ads, SnapChat leverages the following ad revenue sources:2- GeofiltersLife’s more fun when you live in the momentThese are the words you’ll find in SnapChat’s description in the mobile app store. It’s all about capturing the moment and sharing your experience with your Geofilters, users will no longer have to provide details manually. Whether they’re in a mall, national event, or famous landmark, SnapChat offers exclusive filters that will give context to any snap. They’ll no longer have to explain where they are, what they’re doing, and why they’re there. Consequently, they are encouraged to quickly produce user-generated content and share it to their social example, an overlay of fries and a burger will appear if the user is within a McDonald’s does SnapChat profit from this feature? Keep in mind that the company is not charging for the design on Geofilters. If you want to avail an on-demand Geofilter, you’re going to have to create it yourself. However, SnapChat will charge you for two things: the size of the area and the amount of time wherein the Geofilter is start, SnapChat charges $5 for a coverage of 20, 000 square feet, which is the minimum area required for a Geofilter. This area is usually enough for a medium-sized office. On the other hand, the maximum purchasable area for a Geofilter is 5 million square feet, which should be enough to cover a few city ofilters can stay live from anywhere from one hour to a total of 30 days. Apart from big companies, individuals can also pay for temporary Geofilters on events such as birthdays and are some tools and services you can explore, offers the simplest way to create SnapChat Geofilters. It is also a tool for you to create a beautiful Geofilter. Here’s the message from Danny, a Geo-Filter representative, Our Geo-Filter Designer allows you to easily create a stunning Geofilter that is ready for immediate submission to Snapchat. Geo-Filters are great for marketing material, weddings, birthdays, small business’, and much you are not good in designing, you can always get someone else to do it. CustomFilterz can be your solution. It offers a highly customized Geofilter for users. Jason Slater, the co-Founder at CustomFilterz has a message to share, For businesses who want a fully custom geofilter that people will share and fits with their branding, CustomFilterz is the #1 rated geofilter design agency. We also create geofilters for birthday parties, weddings etc. ”Alternatively, you can look for professional SnapChat filters from an online marketplace. FilterPop is the marketplace for custom SnapChat filters. You can find Geofilter designs for weddings, birthdays, and more. Alex Kehr, the CEO at FilterPop shares his company mission, We want every event and moment to be as memorable as possible. FilterPop marketplace connects the bests designers in the world to the most innovative companies and consumers. We help people form memories that last a lifetime. 3- Sponsored Lens FiltersRealizing the appeal of lens filters toward SnapChat users, big companies went ahead and launched their sponsored lens filters. These lens filters are similar to Geofilters since they may also only appear in specific locations. However, lens filters are more interactive and dynamic than stationary Geofilters. To increase the user’s immersion, lens filters also play a sound clip when example, eating at KFC also enables the Colonel Sanders lens filter, which turns users into the white-maned colonel himself. A special animation involving a fried chicken leg also takes place – prompting the user to take a note that Geofilters and sponsored lens filters do more than just improve the experience of about it – if you’re eating at Taco Bell and your head suddenly turns into a giant taco shell, the first thing you’ll want to do is to share it with your friends. As a result, brands who advertise on SnapChat gets to leverage user-generated content (UGP) as well as the social media reach of their customers to gain the way, Taco Bell’s noble attempt at turning people’s heads into tacos did pay off big. A total of 224 million people interacted with the taco head SnapChat filter. To be fair, brands who wish to advertise using sponsored filters had to shell out as much as $750, 000. In comparison, the average cost of a 30-second ad on Super Bowl costs a whopping $5 million. That’s without any guarantees that the audience is even paying attention during the commercial. 4- DiscoverWhen using SnapChat, you may notice that swiping to the right two times opens the Discover feed. Here, you can find curated snaps from publishers such as CNN, BuzzFeed, People, and Cosmopolitan. There will also be a few advertisements in-between snaps, so it’s clear that Discover is being though no one knows how much SnapChat makes the Discover feature, they should be making money hand over fist, given the fact that around 20 big name publishers have partnered with the company. The feature also proliferated during the time SnapChat went through substantial revenue likely, both SnapChat and a publisher will be sharing ad revenue. It just isn’t clear how much each party gets for every deal. 5- Sports PartnershipsIn recent years, SnapChat has partnered with sports organizations such as the NHL, NFL, and the MLB. These organizations supposedly leverage Live Stories during sporting events to reach more people in the social like with Discover, it isn’t clear how much money SnapChat makes with sports partnerships. But since the app offers a direct line to the young and passionate audience, major leagues are investing in deals that put up weekly Discover channels such as “MLB Wednesdays. ”Take note that the MLB started using SnapChat back in 2014. At that time, users must follow their account to view the stories they publish. But with a partnership, live stories are promoted to all an earlier report from, Live Story ads make SnapChat anywhere between $400, 000 and $500, 000 for complete exposure to company’s user base. Aside from major sports organizations, Live Story ad partnerships are sought after by companies like iHeartRadio and WordsIn the past, people were puzzled as to why SnapChat was worth so much because its revenue model wasn’t clear. That explains the company’s moves that affected monetization in the past few, SnapChat has a robust revenue model that caters to companies as well as individuals who’d like to “seize the moment’. For tips on how to integrate SnapChat with your social media marketing strategy, check out these essential rules for effective Snap Chat more:How does Facebook make moneyHow does GoDaddy make moneyHow YouTubers make their moneyHow to buy and sell domains for profitHow Carol Tice makes a living from her freelance writing blog
Frequently Asked Questions about snapchat monetization strategy
How do you monetize Snapchat?
Snapchat monetizes primarily through advertising. The advertising products include: Snap Ads. and Sponsored Creative Tools (Sponsored Lenses and Sponsored Geofilters)
How can Snapchat make more money?
Snap Ads are the bread and butter of SnapChat advertising. They work by showing 10-second, full-screen video ads that are always relevant to other snaps. These ads are also interactive. When presented, users have the option to swipe up to access more content – be it a longer video, blog post, or app install.Apr 15, 2021
How many subscribers do you need to make money on Snapchat?
To become eligible for a Creator Account, a profile must meet the following requirements: At least 100 Subscribers. Has had a Snap Profile for 1 week.